Reference no: EM133007598

Question - On 1 July 2020, Wayne Ltd acquired 40% of the shares in Vermont Ltd for $5,000. At acquisition the equity in Vermont Ltd consisted of Share Capital of $8,000 and Retained earnings of $4,500.

This equity at acquisition reflected the fair value of net assets in Vermont Ltd with the exception of machinery, which had had an estimated useful life of 3 years and a fair value $900 above its carrying amount.

During the year ended 30 June 2021 the following events occurred:

On 1 December 2020, Vermont Ltd declared and paid a dividend of $800 million.

At 30 June 2020, Wayne Ltd held inventory that it purchased from Vermont Ltd with an unrealised gain of $350. Wayne Ltd sold this inventory in the year ended 30 June 2021.

At 30 June 2021, Vermont Ltd held inventory that it purchased from Wayne Ltd with an unrealised gain of $200.

On 30 June 2021, Vermont Ltd's reserves increased by $420 after tax due to a revaluation of land.

On 30 June 2021, Vermont Ltd reported an annual after-tax profit of $1,800.

Wayne Ltd is NOT a controlling entity (that is, Wayne DOES NOT prepare consolidated financial statements). The income tax rate is 30%.

Required -

1. Calculate Wayne Ltd's share of adjusted profit or loss of Vermont Ltd for the year ended 30 June 2021.

2. Prepare the relevant general journal entries from 1 July 2020 up to and including 30 June 2021 in the books of Wayne Ltd under the equity method in accordance with AASB 128 Investments in Associates.